Tuesday, 25 September 2012

Economic side effects of Senkaku Island dispute

Japan’s claim of Senkaku Island property right has brought itself an enormous wave of anti-Japanese protests in China. The Senkaku dispute not only brings about political conflicts and military tension, but also, most importantly economic downtown, as China is Japan’s top two-way trade partner since its two-way tradegrows to $266.4 billion dollar in 2008. Japanese automobiles, electronic products, animated cartoons and video games are all popular Chinese imports. Japanese economy has always been relying on Chinese markets and the number one victim of the Senkaku dispute would be Japanese exporters. Major Japanese exporters such as Honda, Toyota, Sharp, Sony, and Panasonic are all facing dramatic sales and revenues decrease, and huge decline in stock price. Sony and Panasonic are even considering industrial transition and selling its LCD business to the Chinese and Korean producers. Losing its biggest importing country, Japanese export industry devastates in long-term even though Japanese politicians cannot feel this pain.

The anti-Japanese protest broke out on the 19th of August, starting from Shenzhen, Xi’an, Jinan and Chengdu. The protests spread to other big cities such as Zhengzhou, Shanghai and Beijing, etc. when the Japanese government continues to assert its control of Senkaku Island by bidding it for 2.5billion RMB. This “extremely unfriendly move” intensifies the relationship between the Chinese and Japanese government. To fight against Japan’s unfriendly behaviors and under the pressure of countless protestors, the Chinese government increases its import tariffs and largely raises its Japanese product quality standard. Although China itself will be harmed through these trade barriers, as consumers in China lose their consumption in cheap and differentiated Japanese products, and domestic Chinese producers take over the market of imports and produces in a high margin cost, which is not economically efficient to the nation as a whole. However, national pride and defense, rather than economic efficiency is what China is pursuing in the Senkaku island dispute. In order to exert pressure on Japanese government economically, the most efficient way to achieve this noneconomic goal is through placing high trade barriers while receiving more tax revenue.Ruijia Tan.